Electricity Costs

The CO2 price and electricity demand directly affect the marginal cost of the scenarios. Distributed Energy has the highest CO2 price and electricity demand in both timeframes, therefore the marginal cost is the highest. The cost assumptions of wind and solar also influence the CO2 price having an effect on the Levelized cost of electricity in each market node, and the electricity marginal costs of the scenarios.

Figure 32

Figure 32: Marginal costs

Levelised cost of electricity

Across all the scenarios new capacity for electricity generation comes mainly from wind and solar power. Global trends show that incentives, innovation, and investment have matured the solar and wind industry; their levelised costs of electricity (LCOE) is significantly lower compared to other low carbon generation technologies, such as tidal or CCGTs with CCS.

Decisions on what technology to build in an electricity market investment modelling exercise are driven by the achieved electricity market price, i. e. the weighted average price from hours when the wind/solar generator is producing, which is impacted by general supply/demand situations and the amount of previously installed capacity of the same technology. Furthermore, the cost and availability of flexibilities such as interconnection or storage, such as P2X and batteries, impact the investment decisions, since higher amounts of storage may improve the achieved price for variable renewable technologies.

Global Ambition assumes very strong cost reductions for offshore wind, with offshore wind economically competitive to onshore wind and solar PV. Distributed Energy assumes strong reduction in solar PV costs. Wind onshore is generally competitive in both scenarios. Solar PV is generally most competitive in Southern Europe, whereas onshore wind is particularly competitive in Northern and Western Europe. For offshore wind, the lowest costs take place in North Sea and southern Baltic Sea regions.

Figure 33
Figure 33

Figure 33: LCOE: Global Ambition 2040 and Distributed Energy 2040